There is a hearing coming up June 9 at ABQ Bankruptcy court where the SEC has filed a motion to share SOLV trade secrets with competitor. SEC has added a confidentiality agreement. When they were arguing on the district level appeal they spent a fair amount of time telling how unworkable such a situation would be including the SEC authority in such a situation.
It seems all the PhDs in the world cannot help them if they don't work for foreign-based competitors. Do a search at Los Alamos Nation Lab (DOE run by Cal). This doesn't include other DOE Lab Sandia in ABQ. GEEZ
w5.lanl.gov:9061/compass?scope=oil&ui=sr&chunk-size=10&page=2&view-template=search
Following is SEC memorandum to modify injunction. It was scanned from copies obtained from the bankruptcy court clerk. I apologize if my scanning software is not as accurate as it should be.
I'll be posting SOLV response later.
THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO 3
Solv-Ex Corporation, 85-0283729 Debtor.
SOLV-EX CORPORATION,
Plaintiff,
as
THE UNITED STATES SECURITIES
EXCHANGE COMMISSION,
Defendant.
, ~HV~t
Case No. 11-97-14361 MA
Adversary No. 97-1159 M
MEMORANDUM IN SUPPORT OF
SECURITIES AND EXCHANGE COMMISSION'S MOTION TO MODIFY
THE PRELIMINARY INJUNCTION AND PROTECTIVE ORDER
The Securities and Exchange Commission (the "Commission") submits this memorandum in support of its motion to modify the Preliminary Injunction and Protective Order.
The Commission seeks to modify the Preliminary Injunction and Protective Order to permit it to disclose, under an appropriate confidentiality agreement, confidential or proprietary information to competitors or potential competitors of Solv-Ex, as necessary to interview, retain, and obtain opinions and advice from persons who may be qualified to provide expert advice to the Commission.
The Commission files this motion pursuant to the instructions given to it by this Court at the Presentment Hearing on September 2, 1997. See Transcript of September 2, 1997 Proceedings, at 5 (directing Commission to file a motion to
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modify with the Court in the event it needs to modify the
Preliminary Injunction and Protective Order).1
Although the Preliminary Injunction and Protective
Order is on appeal to the United States Court of Appeals for the
Tenth Circuit, this Court retains jurisdiction to modify the
injunction pursuant to Rule 62(c) of the Federal Rules of Civil
Procedure. Rule 62(c) provides that "[[w]hen an appeal is taken
from an interlocutory
injunction, the court
injunction during the pendency of the appeal." Fed. R. Civ. P.
62(c) .2 Thus, Rule 62(c) allows modifications to injunctions
. . . judgment granting . . . an
in its discretion may
. modify . . . an
which are on appeal.
See Sierra Club v. Cedar Point Oil Co., 73 F.3d 546, 578-79 (Sth Cir.), cert. denied, 136 S. Ct. 57 (1996); Christian Science Reading Room Jointly Maintained v. Citv of San Francisco, 784 F.2d 1010, 1017, modified on other grounds, 792 F.2d 124 (9th Cir. 1986), cert. denied, 479 U.S. 1066 (1987) (Rule 62(c) "specifically authorizes the district court to modify, if necessary, the terms of the injunction being appealed from''). Rule 62(c) consequently is an exception to the general principle that a notice of appeal divests a court of jurisdiction
Although the Commission seeks to modify the Preliminary Injunction and Protective Order, it does not waive any right to challenge independently the Preliminary Injunction and Protective Order now on appeal to the United States Court of Appeals for the Tenth Circuit.
Rule 62(c) applies to adversary proceedings in federal bankruptcy courts. Fed. R. Bankr. P. 7062.
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over the judgment or order that is subject to the appeal. Club v. Cedar Point Oil Co., 73 F.3d at 578.
BACKGROUND The Commission staff is investigating whether Solv-Ex made false or misleading representations to investors and the public relating to Solv-Ex's proprietary processes and technologies in violation of ant-fraud or reporting provisions of the federal securities laws. One of the central issues in the investigation is whether Solv-Ex's processes or technologies were technically and commercially viable to the extent and manner Solv-Ex represented to public investors. On September 25, 1997, the Court issued a Preliminary Injunction and Protective Order restricting the Commission's disclosure of "confidential and proprietary information." It "completely" enjoins the Commission from disclosing any "confidential or proprietary information" to any competitor or potential competitor of Solv-Ex and attaches a list of 104 entities that are considered to be competitors or potential competitors. Preliminary Injunction and Protective Order, filed Sept. 25, 1997 ("Protective Order"), at 4 4 ~ Exh. B. The Preliminary Injunction and Protective Order defines "confidential and proprietary information" broadly. Such information is defined as:
all information in any form that if disclosed would reveal all or portions of the confidential details of Solv-Ex's research and development, its methods, designs, products, compounds, compositions, formulas,
processes, procedures, techniques, laboratory analyses, trade secrets, market research and marketing strategies, and technologies associated with:
a. the extraction of bitumen from oil sands, its preparation for market, and the marketing thereof;
b. the extraction of mineral products, particularly alumina, from fine clays in oil sands or waste tailings, its preparation for market and/or use in Solv-Ex's electrolytic cell, and the marketing thereof;
c. the electrolyte cell developed by Solv-Ex for the production of aluminum metal from alumina and the marketing thereof;
d. the recovery of sulfates, primarily aluminum sulfate and the double salt of potassium-aluminum sulfate, to produce metallurgical grade alumina;
e. the production of potassium-based synthetic mineral to be used as pigment and filler in paper, paint and plastic industries (TI02- S tm BKAS), its preparation for market, and the marketing thereof;
f. the investigation of markets for leached clay.
Protective Order, at 3-4 3. Under this definition, virtually
all of the information necessary to describe Solv-Ex's processes
or technologies in any detail or to test their commercial or
market viability would be considered "confidential and
proprietary." Declaration of Katherine S. Addleman ("Addleman
Decl.") 6 (filed herewith).
The Commission staff has now entered into a critical
stage of its investigation where it needs to retain appropriate
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experts. Because one of the central issues in the investigation is the accuracy of Solv-Ex's representations to investors concerning the technical and commercial or market viability of its proprietary processes, the Commission staff has determined that it will need to retain experts with both technical expertise regarding these processes and commercial and/or business knowledge of these types of processes. Those persons, in all likelihood, will be competitors or potential competitors of SolvEx. The Commission, therefore, requests that the Court modify the Preliminary Injunction and Protective Order to permit it to disclose, under an appropriate confidentiality agreement, confidential or proprietary information to competitors or potential competitors of Solv-Ex so that the Commission may interview, retain, and obtain opinions and advice from appropriate experts.
ARGUMENT
I. DISCLOSURE IS NECESSARY FOR THE COMMISSION TO RETAIN
EXPERTS NEEDED FOR THE INVESTIGATION AND/OR PROSECUTION
OF SOLV-EX.
To continue its investigation of (and to prepare for possible litigation against) Solv-Ex, the Commission needs to find and retain experts who can assist the Commission in analyzing Solv-Ex's public representations about its research and development of various technologies. Over a two-year period, Solv-Ex made numerous representations to its shareholders and the public concerning the technical and commercial viability of the processes and technologies it had researched and developed. For
example, in an August 26, 1996 letter to its shareholders, SolvEx made representations which concerned the testing and marketability of bitumen that it had extracted from its oil sand leases and the level of pipelineable oil it expected to produce from the bitumen. See Exhibit A to Declaration of Andra C. Ozols ("Ozols Decl. Exh. A"), filed in support of the Commission's Memorandum in Opposition to Solv-Ex Corporation's Request for a Temporary Restraining Order dated August 17, 1997. In addition, Solv-Ex made representations concerning its ability to extract, and the commercial viability of extracting, minerals from its oil sand leases. Ozols Decl. Exh. A (August 26, 1996 Letter to SolvEx's shareholders). Solv-Ex also made representations which related to the testing and commercial feasibility of the electrolytic cell it had designed. Ozols Decl. Exh. A (January 23, 1996 and September 10, 1996 press releases; August 26, 1996 letter to Solv-Ex's shareholders) .3
The Commission staff has reason to believe Solv-Ex's public statements regarding its processes and technologies were false and misleading, and to support and verify the information the staff has obtained, the Commission needs to retain experts who possess both technical knowledge of these types of processes and technologies and knowledge as to whether these processes or technologies were, or could have been, commercially viable to the extent and manner Solv-Ex represented. Addleman Decl. 5.
Solv-Ex also made numerous other statements to the public relating to the testing and marketability of these and other processes and technologies.
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Persons with such knowledge are persons who have experience in the relevant industries and, thus, who are likely to be considered "competitors" or "potential competitors" of Solv-Ex. Addleman Decl. 5, 8.
"Independent" experts, such as academics, do not possess sufficient technical expertise or business experience or knowledge to assess the technical or commercial viability of Solv-Ex's processes and technologies. Addleman Decl. 1 9. In some areas central to the Commission's investigation, such as the production of bitumen and other industrial materials from oil sands, academics simply have not conducted any relevant research. See id. Moreover, in areas in which academics and other experts "independent" of the industry have conducted some relevant research, they likely do not have the practical business or industry experience necessary to determine, for example, whether Solv-Ex's processes would be more cost effective than processes used by other companies and would enable Solv-Ex to produce enough of the relevant product at a high enough quality to satisfy a relevant market. In other words, persons "independent" of the industry have little or no practical business experience to determine whether Solv-Ex's processes and technologies are, or were, commercially viable. See Addleman Decl. 1
II.
THE COMMISSION SEEKS RELIEF CONSISTENT WITH THE PURPOSES OF AND FINDINGS IN THE COURT'S PROTECTIVE ORDER.
The relief that the Commission seeks is limited and
protects the disclosure of any of Solv-Ex's confidential and
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proprietary information while enabling the Commission staff to continue to investigate and prepare for any appropriate litigation against Solv-Ex.
The modification would allow the Commission to disclose "confidential and proprietary information" to experts and potential experts. It fully protects such disclosure by requiring any expert or potential expert to sign a confidentiality agreement before the Commission may disclose any confidential or proprietary information to him or her. A proposed confidentiality agreement is attached to this memorandum. The Commission's proposed confidentiality agreement protects Solv-Ex by prohibiting any expert or potential expert from disclosing or using any information -- confidential or otherwise -- other than for the purposes of the investigation or any enforcement proceedings.
At the same time, the modification enables the Commission "to continue its investigation." Protective Order, at 2 1 6. The Commission has entered into a critical stage of its investigation where it needs to retain appropriate experts. Because of the nature of the investigation and the scope of the Preliminary Injunction and Protective Order, those experts are likely to be persons who are "competitors" or "potential competitors " Of Solv-Ex. Addleman Decl. ~ 8. Unless the Preliminary Injunction and Protective Order is modified, the Commission may be foreclosed from continuing its investigation,
8
and any further proceedings, in an appropriate and effective manner. Addleman Decl. 10.
The modification, therefore, is consistent with, and serves the purposes of, the Court's Preliminary Injunction and Protective Order.
CONCLUSION
For the foregoing reasons, the Preliminary Injunction and Protective Order should be modified to permit the Commission to disclose confidential or proprietary information to competitors or potential competitors of Solv-Ex, pursuant to an appropriate confidentiality agreement, so that the Commission may consider and retain appropriate experts.
Dated: April 30, 1998 Washington, D.C..
Respectfully submitted,
~ ~. /d~/~+
RICHARD M. HUMES
Associate General Counsel
MELINDA HARDY
Senior Counsel
DEBORAH A. TARASEVICH
Attorney
SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W., Stop 2-12
Washington, D.C. 20549
Tel: (202) 942-0877 (Hardy)
FAX: (202) 942-9625
9
( PROPOSED ) CONFIDENTIALITY AGREEMENT
1. I, , understand that I am
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being considered, and may be retained, by the Securities and Exchange Commission (the "Commission") as an expert in its investigation of Solv-Ex Corporation ("Solv-Exn), captioned In the Matter of Solv-Ex Corporation and Alanco Environmental Resources Corporation, File No. D-2036 (the "investigation"), and any proceedings that may be brought as a result of the investigation.
2. I understand that as a result of the Commission's consideration or retention of me as an expert, the Commission may disclose to me information or documents which may be considered confidential or proprietary.
3. I agree not to disclose or use any information disclosed to me for purposes other than this investigation or any proceedings that may result from this investigation, except in the event that I am retained by the Commission, I may disclose such information as necessary to consult with associates or colleagues for the purposes of forming my expert opinions. I agree not to make any such disclosures, however, until the associate or colleague has executed a similar Confidentiality Agreement with the Commission.
4. I understand that if I disclose or use any confidential or proprietary information for purposes other than those described in this Confidentiality Agreement, I may be subject to civil suit.
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5. I understand that if I am retained as an expert by the Commission, I make this Confidentiality Agreement in addition to any other expert witness or non-disclosure agreement required by the Commission.
Date
Signature
2
CERTIFICATE OF SERVICE
I hereby certify that on April 30, 1998, I caused a true copy of the attached Memorandum in Support of Securities and Exchange Commission Motion to Modify the Preliminary Injunction and Protective Order to be served by first-class mail, postage prepaid upon:
R. Thomas Dawe, Esq.
Eastham Johnson Monnheimer & Jontz, P.C.
Attorneys for Solv-Ex Corp.
500 Marquette NW, Suite 1200
P.O.. Box 1276
Albuquerque, New Mexico 87103
MELINDA HARDY
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